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Kass: 15 Surprises for 2012

This commentary originally appeared at 7:00 a.m. EST on Dec. 27 on Real Money Pro -- for access to all of legendary hedge fund manager Doug Kass's strategies and commentaries, click here.

"Never make predictions, especially about the future."

-- Casey Stengel

While I had a reasonably successful
surprise list for 2011, with about half my surprises coming to fruition, the real story was that I achieved something that is almost impossible to accomplish.

My most important surprise (No. 4) was that the
S&P 500 would end the year at exactly the same price that it started the year (1257) and that the range over the course of the year would be narrow (between 1150 and 1300).

As explained below, both predictions were remarkably close to what actually occurred.

My Biggest Surprise for 2011 Was Eerily Prescient

As we entered 2011, most strategists expressed a sanguine economic view of a self-sustaining domestic recovery and shared the view that the S&P 500 would rise by about 17% and would end the year between 1450 and 1500 vs. a year-end 2010 close of 1257.

By contrast, I called for a sideways market, stating that the S&P would be exactly flat year over year. To date, that surprise has almost come true to the exact S&P point. Remarkably, at around midday last Friday, Dec. 23, the S&P 500 was trading at 1257 -- Friday's closing price was 1265 -- precisely the ending price on Dec. 31, 2010! (There are still four trading days left in the year, so technically the exercise is not yet over.)

A flat year is a much rarer occurrence than many would think. According to
The Chart Store's Ron Griess, in the 82 years since 1928, when S&P data was first accumulated, the index was unchanged in only one year (1947). And in only three of the 82 years was the annual change in the S&P Index under 1% -- 1947 (0.00%), 1948 (-0.65%) and 1970 (+0.10%).

In addition to the amazing accuracy of my variant S&P forecast, my forecast for the index's full-year trading range was almost as precise -- in both content and from the standpoint of causality.

As I wrote, a year ago, the S&P 500 would exhibit "one of the narrowest price ranges ever."

The surprise expected was that the S&P would never fall below 1150 (it briefly sold at 1090) and never rise above 1300 (it briefly traded at 1360), "as the tension between the cyclical tailwind of monetary ease (and the cyclical economic recovery it brings) would be offset by numerous nontraditional secular challenges (e.g., fiscal imbalances in the U.S. and Europe; a persistently high unemployment rate that fails to decline much, as
structural domestic unemployment issues plague the jobs market; and the continued low level of business confidence (reinforced by increased animosity between the Republicans and Democrats) exacerbates an already weak jobs market and retards capital-spending plans." I went on to write, "Despite the current unambiguous signs of an improving domestic economy, as the year progresses, the growing expectation of consistently improving economic growth and a self-sustaining recovery is adversely influenced by continued blows to confidence from Washington, D.C., serving to contribute to a more uneven path of economic growth than the bulls envision."